Consumer Behavior analysis of the Airline Sector: A case of Air India
Submitted By:
Akshay Gupta, Navnit Khanke, Mohit BN, Rohtash Singh Rathore, Sampad Chandra
1. Introduction to the topic
In 1994, the then Government of India repealed the Air Corporations Act, 1953 and replaced it with the Air
Corporations (Transfer of Undertaking and Repeal) Act, 1994 thus enabling private companies to operate scheduled
services at domestic locations. This was part of the broader liberalisation reforms that started in 1991.
Today, India has the fastest growing domestic aviation market in the world, as per the International Air Transport
Association (IATA). Indias domestic air passenger demand grew by 28.1% (July 2015) as compared to the previous
year. This growth is three times as compared to Chinas (10.9%) growth and five times as compared to United
States (5.9%) growth during the same period. Forecasted growth for Indias domestic traffic is expected to be
around 15% for the current year.
By all means, India seems to be on a cusp of a civil aviation revolution. Aviation Industry in India holds around 69%
of the total share of the airlines traffic in the region of South Asia. This time period, thus, is critical for the industry
and requires serious governance and leadership to create global Indian institutions.
The finance minister in his budget speech talked about the Government intention of drawing up an action plan for
revival of 160 unserved and underserved airports which can be revived at an indicative cost of Rs 50 crore to Rs
100 crore each.
While the domestic demand for air travel has increased considerably in the last few years, the Government has
done little to actually help it achieve its true potential. Government has not reduced the jet fuel prices in proportion
to the fall in international crude oil prices. Services provided at all Indian airports except the major ones continue
to be far below the global standards. The airport connectivity with the cities is extremely limited.
However, no governments failure comes even close to its failure in revamping the countrys national carrier, the
Air India. Air India continues to bleed losses to the tune of Rs. 2,636 crore in 2015-16 and Rs 5,859 crore in the year
2014-15. Government has once again been forced to inject a sum of Rs. 22,280 crore in March 2016 to keep the
airlines afloat. So far, the Indian government has pumped in more than Rs 30,000 crore in the airline. As of
December 2015, the 85-year-old airlines debt stood at over Rs 50,000 crore. Adding to this, it has been steadily
losing market share to rivals from the 35% share in 2007 to 16% in early 2016.
There was a time not too long ago when Air India set the global standard for customer service. Now, it seems to
have fallen far behind its Middle Eastern and South Asian counterparts in terms of quality services and business
excellence. Only about 2% of the Indian population currently travels by air. Airbus, the worlds second-largest
aircraft-maker, believes Indias civil aviation industry will grow by over 9.5% in the next 20 years while US-
headquartered Boeing expects a demand for 1,740 planes in India in the same time period. Thats an opportunity
that Air India cant afford to miss.
The expansion of Indias aviation sector also brings with itself a number of security challenges including prevention
of terrorism. The world watched in horror how Brussels airport was attacked by suicide bombers on 22nd March
2016. We cant allow any such incidents in India. In this context, a recent report by a department related to the
Parliamentary Standing Committee on Transport, Tourism and Culture raises deep concerns by suggesting that 27
functional airports in the country are protected by forces other than the Central Industrial Security Force (CISF).
The report said it was quite scary to know that the security of eight of our hyper-sensitive and 19 of our sensitive
airports are not covered by the CISF that has now become the only specialised force for aviation security. The
report said that Explanations given to the committee for non-deployment of CISF at remaining airports were
lack of funds. In the present day world where the terrorists are always a step away from creating havoc and taking
hundreds of innocent lives, the Government is best advised to not compromise with the security of Indian citizens
and provide the CISF with necessary resources.
The last few years have seen a significant improvement in photography and drone technology. A number of
countries around the world are trying to minimize the threats posed by drones by regulating the usage of drone
technology. Recently, a person was captured with a small sized drone flying around the Prime Ministers house.
Repetition of such an incidence cant be tolerated under any circumstances. To this effect, I have introduced a
private member bill which aims to ensure that advancement in photography and drone technology doesnt make
our skies more vulnerable. The number of drones is only going to rise in future and there is an urgent need for the
Government to bring a pre-emptive legislation to ensure the safety of our skies.
To summarize, triggered by the reforms that started almost 2 decades back, Indias civil aviation sector is ready to
become one of the largest in the world. While the opportunities are immense, the vulnerability of our skies has
also grown manifolds. The Government needs to come up with a comprehensive policy in the civil aviation sector
which not only ensures that Indian civil aviation companies are able to become world leaders but also that they
are able to offer safe and convenient travel to customers at competitive prices.
(***Source: The Indian Express)
2. Industry Structure in general and for project topic in particular
Market Share of Airline Industry in India
450000000
400000000
350000000
300000000
COUNT
250000000
200000000
150000000
100000000
50000000
0
2020F 2016 2015 2014
India is set to become 3rd largest aviation market by 2020.
By 2020, passenger traffic at Indian airports is expected to increase to 421 million from 223.61 million
in 2016.
(***Source: AAI 2015-16 Annual Report)
(***Source: IBEF Report)
(***Source: IBEF Report)
Travel and tourism to contribute US$ 423.7 billion to GDP by 2026.
The travel and tourism industry is forecast to grow at a CAGR of 6.66 per cent to US$ 423.7 billion in 2026 from US$ 100 billion in 2017.
Business and leisure travel to boost growth.
Spending on business travel is estimated to increase to US$ 39.88 billion in 2026 from US$ 10.26 billion in 2017, while on leisure travel is
forecast to rise to US$ 203.5 billion in 2026 from US$ 181.65 billion in 2017.
3. Year of establishment: 15th October 1932. Commenced operation on 29 July, 1946. ***Wikipedia
4. Number of employees: 20,956 (November 2016) ***Wikipedia
5. Services offered
Domestics Flights
International Flights
Domestic Cargo handling and warehousing
International Cargo handling and warehousing
Ground Handling Setup
VVIP and Charter Facilities
6. Profitability Aspects
Air India has reported an operating profit of 105 crore for the year 2015-16 against a loss of 2,636 crore reported
during the previous year. The financials for 2015-16 were cleared by the airlines auditors and approved by its Board
here on Friday. Earnings before Interest, Depreciation Tax and Amortisation improved to 3,587 crore during 2015-16
from 1,436 crore during the previous year. Sources indicated that the net loss after interest stood at 3,587 crore from
5,859 crore in the previous year. The airline suffered an exchange loss of 352 crore due to depreciation of the Rupee
against the Dollar during 2015-16. Almost 70 per cent of the airlines costs are Dollar-denominated. Air Indias total
revenues stood at 20,526 crore during 2015-16. This was marginally down (0.42 per cent) from 20,613 crore reported
during the previous year.
7. Major problems encountered
Operational Problems: High percent of vacant seats, High on ground time of the fleet
Financial Problems: Huge Debt
Human Resources Crisis: Late Payment of Salaries, decreasing employee morale
Large Government and Administrative interference
8. CRM Strategies and service quality management tools
Online Reservation System: Air India was the pioneer in developing an online ticketing system, which
improved customer ease and satisfaction level
Separate accounts for members, agents, government officials, MPs and corporate customers: Air India
manages separate accounts for different set of customers and reaches out with customised deals
Call Centres: Air India has an effective call centre facility for customer grievances and information
dissemination.
Baggage tracker: Air India has an online baggage tracker facility for its passengers (whose baggage gets
lost) and cargo
Flight Tracking: Air India offers flight tracking services for its customers for effective flow of information
Web Check-ins: Air India has started web check-ins on few selected flights and plan to implement on all
flights.
Customer Interaction Management: This is a new hybrid of the traditional CRM technologies that have
been adapted to the Internet and the growing number of personal communication devices. CIM
comprises parts of the previous generation of CRM solutions with the addition of Web-based interaction
solutions.
Mobile Application: Air India has developed its mobile app, on which it provides information services,
booking services, discounts, and other services which improves customer overall experience.
Various Schemes are offered by Air India which are developed using BI and Predictive Analytics and
analysing behaviour of different customer segments. Air India offers following type of schemes:
o International Schemes
o Domestic Schemes
o Corporate Houses
o Group Bookings
o eSuper Saver Scheme
9. Segmentation Strategy
Identification of Segments
Segment 1 Segment 2 Segment 3
Title
Low Income Middle Income High Income
Income Low Moderate High
Usage Rate Low Moderate High
Value for money High High Low/High
Psychographic Segmentation:
Air India has a strong image of an official national carrier.
Most of the government officials, bureaucrats including the president and Prime Minister of India
travel by Air India.
People who are travelling by Air India since the past few decades are still loyal to it.
Market Segmentation
Demographic Segmentation: Income based
Business Class: Boeing 787 Dreamliner 18 business class seats
Economy Class: Boeing 787 Dreamliner 238 economy seats
Geographic Segmentation:
31 International destination in19 countries across Australia, Asia, Europe and North America.
Air India serves 60 domestic destination in India.
Justification for choosing the segments
Target Market Strategy
Air India should follow a Multi-Segment strategy to target different segments.
10. Unique Services Offered
Only flight with availability of food and catering service in the ticket fare
The maximum permitted weight for Hand Baggage is 8 Kgs per passenger.
Gold Member of Star Alliance would continue to be permitted an additional 20Kgs of baggage
allowance in Economy Class
Passenger Handling
Ramp Handling
Cargo Handling & Warehousing
Technical Assistance
Diverted Flight Handling
VVIP & Charter Handling
Airport Handling Training & Development
ULD Repair Facility
Aircraft Recovery Assistance
Engineering /Allied Services
Air India Airport Services is the only authorized agency that can provide Security Services at all Airports
in India.
Only ground handling agency authorized by the Government of India, to perform Ground Handling at
all airports in India and exclusively at joint defense user airports
11. Average number of customers carried by Air India on a monthly basis:6
AIR INDIA EXPRESS (2016-2017)
Month Domestic Passengers International Passengers Total number of Passengers
Apr 6,740 2,46,332 2,53,072
May 12,727 2,60,886 2,73,613
Jun 7,897 2,40,723 2,48,620
Jul 7,740 2,81,438 2,89,178
Aug 9,139 2,80,437 2,89,576
Sep 9,666 2,77,156 2,86,822
Oct 11,707 2,59,153 2,70,860
Nov 13,865 2,61,846 2,75,711
Dec 10,308 3,15,539 3,25,847
Jan 9,970 3,16,524 3,26,494
Feb 6,105 2,64,802 2,70,907
Mar 5,017 3,05,046 3,10,063
TOTAL 1,10,881 33,09,882 34,20,763
AIR INDIA (2016-2017)
Month Domestic Passengers International Passengers Total number of Passengers
Apr 11,17,795 4,65,781 15,83,576
May 12,46,137 4,89,623 1735760
Jun 11,56,490 4,60,734 1617224
Jul 11,77,504 4,92,350 1669854
Aug 11,34,913 4,95,666 1630579
Sep 11,17,959 4,59,875 1577834
Oct 10,30,490 4,56,108 1486598
Nov 10,68,768 4,70,888 1539656
Dec 12,45,063 5,24,561 1769624
Jan 12,65,046 5,49,131 1814177
Feb 10,84,609 4,75,964 1560573
Mar 10,89,418 5,24,282 1613700
TOTAL 1,37,34,192 58,64,963 19599155
INDIAN AIRLINES (2016-2017)
Month Domestic Passengers International Passengers Total number of Passengers
Apr 78,96,940 16,18,535 95,15,475
May 86,23,381 16,91,268 10314649
Jun 79,33,791 15,83,651 9517442
Jul 84,75,231 17,39,082 10214313
Aug 83,49,518 17,42,394 10091912
Sep 81,98,645 16,46,297 9844942
Oct 86,40,189 16,38,643 10278832
Nov 89,41,496 16,80,963 10622459
Dec 95,16,243 19,53,141 11469384
Jan 95,48,612 19,97,487 11546099
Feb 86,16,856 16,75,453 10292309
Mar 90,07,696 18,47,324 10855020
TOTAL 10,37,48,598 2,08,14,238 124562836
ALLIANCE AIR (2016-2017)
Month Domestic Passengers International Passengers Total number of Passengers
Apr 44,691 0 44,691
May 50,046 0 50046
Jun 44,202 0 44202
Jul 47,610 0 47610
Aug 54,618 0 54618
Sep 52,990 0 52990
Oct 57,813 0 57813
Nov 58,611 0 58611
Dec 53,803 0 53803
Jan 53,021 0 53021
Feb 51,519 0 51519
Mar 56,487 0 56487
TOTAL 6,25,411 0 625411
12. Awards and recognitions:
Air India has been awarded as the Most Trusted brand in Airline category voted by consumers during
the Readers Digest Trusted Brand Awards 2016.1
Air India received the Amity HR Excellence Award in November 2013 for Global Business Development
for significant contribution in the field of HR development in the corporate sector.2
Air India figured in the top 50 service brands in India in November 2012 edition of Most Trusted
Brands survey by the Economic Times Brand Equity. Air India has been honoured with this Award for the
seventh time.2
Air India received the Best Performing Airline Award in October 2012, presented by Travelport,
Singapore.2
The Global Commerce Excellence Award 2012 was presented to Air India in appreciation towards
continuing business in Sri Lanka despite challenges.2
Air India was presented the Gold Award in the Readers Digest Trusted Brand 2013 survey, India, in the
airlines category for a record eighth consecutive year.2
Air India was chosen by the Selection Committee of Business Initiative Directions (BID), Spain for the
International Quality Crown Award (IQC) in the Diamond Category in the year 2014. Air India won this award
for the third consecutive year for commitment to quality and excellence and on the basis of IQS Regulations
and criteria of the QC100 Total Quality Management Model.3
Air India was awarded the Rashtriya Khel Puruskar 2012 for its outstanding contribution in the field of
sports in the category of Community Sports Identification and nurturing of budding young talents.4
Air India was awarded the International Quality Summit (IQS) Award in Gold Category in 2012 at New
York.4
Air India won the National Energy Conservation Award in 2009 & 2011 for its achievements in energy
conservation in general category sector.4
Air India won several World Travel Awards including:5
India's Leading Airline 2012
Asia's Leading Airline - Economy Class 2011
India's Leading Airline 2011
Asia's Leading Airline - Economy Class 2010
India's Leading Airline 2010
India's Leading Airline 2008
13. Consumer perception towards AirIndia:
In order to analyze the customer perception towards AirIndia, survey was carried out by floating google form.
The google form consisted of following questions:
Inferences:
After analyzing the answers, the inferences that could be made are:
More luggage limit provided by AirIndia when compared to other players had a significant impact on consumer
choosing AirIndia over other players.
One of the main reason behind customers backing out from the AirIndia is the delay time of flights which
sometimes goes up to 6-7 hours.
The average satisfaction level of Airindia customers in the range of 1-5(1 being the lowest and 5 being the
highest) is found to be 3.6 which shows that customers are satisfied with flying by AirIndia.
When compared to AirIndia, Indigo has more presence among the fliers.
14. Summary
Indias aviation industry is largely untapped with huge growth opportunities, considering that air transport is still
expensive for majority of the countrys population, of which nearly 40 per cent is the upwardly mobile middle class.
The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational
decisions that would boost Indias civil aviation industry. With the right policies and relentless focus on quality, cost
and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market
by 2026
Group had shown Consolidated Net Loss for 2016-17 at Rs.43,100 Million which was less by Rs.19,700 Million
compared to the previous year's loss of Rs.62,804.3 Million. EBIDTA had increased from Rs.2,269Million
during 2014-15 to Rs.25,998.6 Million during 2015-16 and EBIDTAR from Rs.14,198.1 Million to Rs.38,915
Million during 2015-16. Passenger Revenue on a consolidated basis increased from Rs.185,202.9 Million to
Rs.187,036.1 Million during 2015-16. Other Revenue increased from Rs.15,085.3 Million during 2014-15 to
Rs.20,726.1 Million during 2015-16.
There was a reduction in Total Expenses by 5.25% from Rs.295,099.7 Million during 2014-15 to Rs.279,600.8
Million during 2015-16 mainly on account of reduction in fuel and oil expenditure by Rs.29,003.1 Million and
Material and Outside Repair Cost by Rs.3,785.4 Million.
A survey done on consumer choices show that more luggage limit provided by AirIndia when compared to other players
had a significant impact on consumer choosing AirIndia over other players. One of the main reason behind customers
backing out from the AirIndia is the delay time of flights which sometimes goes up to 6-7 hours. The average satisfaction
level of Airindia customers in the range of 1-5(1 being the lowest and 5 being the highest) is found to be 3.6 which
shows that customers are satisfied with flying by AirIndia. When compared to AirIndia, Indigo has more presence
among the fliers.
To summarise, customers are satisfied to fly with airline, but want improvements in the flight schedules. The delays
are a major setback for Air India.
References:
1. http://airindia.in/newsdetail.htm?653
2. http://www.airindia.in/writereaddata/Portal/FinancialReport/1_215_1_Management_Discussion_and_Analy
sis_Report.pdf
3. http://www.airindia.in/writereaddata/Portal/FinancialReport/1_115_1_Management-Discussion-Analysis-
Report-2013-2014.pdf
4. http://www.airindia.in/writereaddata/Portal/FinancialReport/1_196_1_management_discussion_analysis_re
port.pd
5. https://www.worldtravelawards.com/profile-29-air-india
6. http://dgca.nic.in/pub/pub-ind.htm#yearly
